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Retirement Topics – What Happens When an Employee has Elective Deferrals in Excess of the Limits? | Internal Revenue Service

If an employee’s total deferrals are more than the limit for that year, the employee should notify the plan and ask that the difference (called an excess deferral) be paid out of any of the plans that permit these distributions.

Excess withdrawn by April 15. If the employee withdraws the excess deferral by April 15, the withdrawn amount is not reported again as part of the employee’s gross income for the year. Any income earned on the withdrawal is reported as gross income for the tax year in which it is withdrawn. The distribution is not subject to the additional 10% tax on early distributions.

Excess not withdrawn by April 15. If the employee does not take out the excess deferral by April 15, the excess, though taxable in the year of deferral, is not included in the employee’s cost basis in figuring the taxable amount of any eventual benefits or distributions under the plan. In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.

Source: Retirement Topics – What Happens When an Employee has Elective Deferrals in Excess of the Limits? | Internal Revenue Service

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Must-Know Rules for Converting Your 401(k) to a Roth IRA

The Bottom Line

Ideal candidates for rolling employer retirement plans into a new Roth IRA are those who do not anticipate taking distributions from the account for a number of years. Those who convert a 401(k), of either type, into a new Roth IRA must pay a 10% penalty on any money they withdraw from the Roth if they withdraw money within five years from the conversion.

Those aged 59½ or older are exempt from the 10% early withdrawal penalty as are those who transfer the 401(k) funds into an existing Roth IRA that was opened five or more years ago. This exemption allows the rolled-over 401(k) funds to also be withdrawn without penalty.

Source: Must-Know Rules for Converting Your 401(k) to a Roth IRA

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Roth IRA Conversion Calculator | Converting an IRA | Charles Schwab

Why consider a Roth IRA conversion?

Converting to a Roth IRA may ultimately help you save money on income taxes. For instance, if you expect your income level to be lower in a particular year but increase again in later years, you can initiate a Roth conversion to capitalize on the lower income tax year and then let that money grow tax-free in your Roth IRA account. See if a Roth IRA conversion is right for your own financial situation.

Source: Roth IRA Conversion Calculator | Converting an IRA | Charles Schwab

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55e.co – Bucket Strategy

Thank you for your interest in the Bucket Strategy Spreadsheet. The Spreadsheet uses historical data to see how the two or three bucket strategy would have done during different time periods. Historical returns and inflation rates are provided, and custom ones can also be used. Features include: inflated expenses, rebalancing between buckets, and different withdrawal types (Inflation adjusted, fixed, decreasing percentage, and similar to RMD).

I’m starting the price off at $25, and you can send payment through Paypal. Either by my email account (dan@55e.co) or https://paypal.me/55eco Other options could be arranged. What you will get is the Google Spreadsheet, about instructional video on use of the spreadsheet (currently not available) and technical support via email, and possibly video conferencing. Once I receive your payment, I’ll send you the Google Spreadsheet link for you to make a copy to your Google Drive account. The spreadsheet will not work with Excel.

Pay via Paypal and email me at dan@55e.co

Source: 55e.co – Bucket Strategy

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Roth Conversion: Converting IRAs – Fidelity

Converting your traditional IRA to a Roth IRA

Learn about the potential benefits of a Roth IRA and how to take advantage of them if you have assets in a traditional IRA

It’s generally a good idea for most investors to consider including a Roth IRA in their overall retirement planning. Investments in your Roth IRA have the potential to grow tax-free, which may help you save more over time. Plus, Roth IRAs don’t have required minimum distributions during the lifetime of the original owner, and Roth IRA assets may pass to your heirs tax-free.

Determining if a Roth conversion is right for you

Ready to get started?

Roth Conversion Checklists
Follow these simple steps to convert your Traditional IRA or old 401(k) to a Roth IRA.

Anyone can convert their eligible IRA assets to a Roth IRA regardless of income or marital status. Prior to 2010, only those account owners who had a modified adjusted gross income below $100,000 were eligible to convert.

Despite its advantages, Roth may not be the preferred option for all investors. There are three important factors—taxes, time, and costs—that you should consider before you decide if conversion is right for you. Fidelity’s Roth IRA FAQs can help you weigh these factors and get answers to important questions you may have. Be sure to consult with your tax advisor with regard to your personal circumstances.

To learn more about the differences between Roth and traditional IRAs and get a quick overview of eligibility and features, use the Compare Roth and Traditional IRAs.

It’s also important to note that if you are required to take a required minimum distribution (RMD) in the year you convert to a Roth IRA, you must do so before converting.

Considerations for owners of Roth IRAs

Distributions from a Roth IRA are qualified, and thus tax-free and penalty-free, provided that the 5-year aging requirement has been satisfied and at least one of the following conditions has been met:

  • You reach age 59½
  • You pass away
  • You are disabled
  • You make a qualified first-time home purchase

All other distributions are non-qualified. Non-qualified distributions of converted balances are not taxed again (since they were taxed when converted), but they may be subjected to a 10% penalty unless it’s been at least five years since the beginning of the year of your conversion, you’ve reached age 59½, or one of the other exceptions applies.

RMDs are not required during the lifetime of the original owner of a Roth IRA. RMD amounts are not eligible to be converted to a Roth IRA.

If you qualify, you can do an eligible rollover distribution from your old 401(k) directly to a Roth IRA. You’ll owe taxes on the amount of pretax assets you roll over.

Note also, if you have assets in a Designated Roth Account (i.e., Roth 401(k)) and would like to roll these to an IRA, the assets must be rolled into a Roth IRA.

As with Traditional IRA conversions to Roth IRAs, if you are required to take an RMD in the year you roll over into an IRA, you must take it before rolling over your assets.

Learn more about your rollover options

Next steps

Calculator

IRA Contribution CalculatorOpens in a new window Answer a few questions in the IRA Contribution Calculator to find out whether a Roth or traditional IRA might be right for you, based on how much you’re eligible to contribute and how much you might be able to deduct on your taxes.

Roth IRA Conversion ChecklistsGet step-by-step instructions on how to convert to a Roth IRA from a Fidelity or non-Fidelity Traditional IRA or 401(k).

Source: Roth Conversion: Converting IRAs – Fidelity